The impact of the Digital Services Act on business users
From finding work to booking holidays, reading the news to running a business, the services people need can be found online—often via a platform intermediary. For example, e-commerce plays an increasingly important role, with an average of 60% of individuals across the EU having bought goods or services online in 2019. Importantly, the interconnectedness of platforms with the wider economy means that their incentives are closely aligned: platform startups grow by creating a vibrant online ecosystem for their business users.
In June 2020, the European Commission proposed a new Digital Services Act (DSA) to provide updated rules and regulations for digital services. In light of this, Allied for Startups asked Oxera to examine what different DSA policy options could mean for Europe’s businesses and consumers.
Previously we conducted analysis showing that careful drafting of the DSA is vital to ensuring the digital economy continues to generate value for member states’ economies and society more widely.
The DSA could…
Help business reach customers
A key benefit of online platforms is the scale and scope efficiencies they offer. Vibrant platforms help businesses reach a wide customer base at home and around the world. A consistent regime around the EU could unlock an additional €2.3bn revenue per year for the travel and tourism sector in the four countries surveyed. Indeed, 71% of businesses said the number of users that platforms have is important to their business’s success; while 39% said they would lose customers if platforms were to limit user numbers.
Enable platforms to protect users
Platforms have a strong incentive to invest in technologies and processes that protect users and increase the value of their online ecosystem. However, the current rules prevent operators from proactively moderating content, for fear of losing their liability protections. The DSA should correct this, aligning the regulatory environment with platforms’ commercial incentives.
Promote safety and trust
Safety and trust are important for both online platform operators and their business users. For platforms, more trust means more users; while for businesses, this means more sales opportunities. Nevertheless, it is important to take a flexible approach that allows platforms to implement scalable solutions that avoid onerous requirements for businesses.
How could the DSA achieve this?
Lost business opportunities
The flexibility that platforms offer their business users enables economic activity that might otherwise not occur. Any regulations that inhibit this flexibility could eliminate these gains. For example, burdensome sign-up processes could discourage 28% of gig workers; while delays to job posts could prevent 40% of them from doing work at short notice.
Removal of platform features
Increased liabilities or reporting requirements could lead platforms to restrict or remove ancillary features in order to mitigate legal risks or avoid administrative costs. This would hinder businesses’ online activities, given the benefits they receive from features such as written reviews, flexible working and AI-driven matching of businesses to potential new customers.
Putting online revenues at risk
Changes to the regulatory environment could force platforms to change the services they offer. This, in turn, will affect the demand that businesses face online, reducing their ability to generate revenue. For example, interventions that lead platforms to restrict their functionality, incorrectly take down content and raise fees could reduce revenues for 38% of businesses. That could mean €1.4bn per year in lost revenues for the travel and tourism sector in the four countries surveyed.
Continue to limit platforms’ liability for third-party content posted to their site and the transactions they facilitate. To lose this would create a de facto general monitoring requirement as platforms seek to control their liability risk.
Enable proactive measures by allowing platforms to take voluntary actions to screen for harmful or illegal content while preserving their limited liability.
Design procedural obligations with known penalties such as notice-and-act systems that could increase trust for business users and consumers, while providing legal certainty and measurable risk for platforms.
Increase the consistency of rules applied across the EU by extending the country-of-origin principle to the broadest possible range of legal requirements. This will help platforms to enter and expand across member states.
Avoid information burdens that discourage business users, such as burdensome sign-up processes or the detailed verification of each action taken on the platform (such as product listings, qualifications, or content copyright).
Do not prescribe solutions that specify how platforms should govern their ecosystem. For example, requiring human oversight of every issue, or defining zero-tolerance policies, would prevent platforms from innovating with scalable technical solutions (such as AI tools) or developing new business models (such as flexible, gig working).
Avoid rules based on platform size (such as user numbers, or the value of transactions facilitated), which disincentivise platform growth by creating a regulatory ‘cliff edge’ for scale-ups of increasing compliance costs when the threshold is reached.